Explanation of ABC Model and Its Features
Westpac Banking is extremely complex when you relate it to the forgone years. Managers of the Westpac banking corporation require information that is accurate, relevant and readily available. The information is needed for the operationalization and formulation of functional policies and on product mix of the Company. ABC now remains the best option that can help improve the services of the organization (Van, Rosa and Santoro 2016).
The shifting nature of the Westpac Banking, the rising complex urgent global problems that the company faces, the increasing changing marketplace, and the continuous attack of improvement opportunities from consultants and vendors, the Westpac banking must keep getting smarter and faster at integrating and identifying improvements of the organization in its daily operations. Westpac banking not only needs to improve how it works but also to enhance how they improve their services (Goetsch and Davis 2014). ABC model is an essential framework which helps the organization in improving its activities. The paper is divided into parts. The first part gives the true meaning of the ABC model and its features. The second part gives an explanation of how the model (ABC Model) supports the current strategies and goals of the organization. The third part is the recommendations about the execution of the model (ABC model) for the Westpac banking corporation. The last part suggests possible management accounting tool appropriate for the Westpac Banking Corporation.
ABC is a technique used by different organizations for an accumulation of cost for a specific cost object (for example service, customer, and product) that denotes the true and total economic resources consumed or required by the object. ABC happens in two different phases. The first face, cost data is known in the activity costs pools. It is where the cost of important activities is being determined. The first face is also known as the activity based process costing (ABPC). After that, the amounts recorded in cost pools are apportioned to services, products or other different cost objects. The 2 phase is called activity-based object costing (Frazier 2014).
The main goal of activity base model is to develop the causal correlation among activities, entities, and resources in apportioning overhead costs. The major belief behind the approach of the cost is that cost is initiated and factors that cause the cost of products and services can be managed by the organization (Chen and Luo 2014). When the company is able to connect costs to their causes, then it will enable accounting information to manage and guide decisions of the organization. The organizations use resources to perform activities. Resources conduct activities to aids services and products. To have a good understanding of cost dynamics requires modeling the correlation between activities of the organization as well as their causes and also modeling the correlation between cost and activities. ABC uses the concept that a business is made up of inter-related processes and all the processes are composed of activities that transform inputs into outputs.
Alignment of ABC Model with Current Goals and Strategies of the Corporation
Activity Based Model has the following features: the total cost is separated into 2 parts, the two parts are variables cost and fixed costs which is essential in the provision of quality data to design appropriate cost system. The second feature of the ABC model is that the appropriate difference is made between the patterns of the costs behavior. The third feature of ABC model is that the patterns of cost behavior are diversity-related, volume related, time-related and events related. The next feature is that the proper driver of cost has to be recognized for locating expenses to a product. Lastly, the drivers of cost dictate the pattern of cost behavior.
The mission of the Westpac banking is to provide excellence in innovative and service financial product design to assist their clients to satisfy their financial objectives in the protection, enjoyment, and protection of wealth by supporting them in making informed decisions which show the love of the family, commitment to the community, and value system. It enables its partner’s associates to satisfy their full potential, even above what they believe they are able to achieve in their life. The Westpac banking corporation also has a mission of becoming number one in the provision of the customer services. The company intends to deliver their mission by developing a strong understanding of the needs of their customers and providing solutions to strengthened long-term relationships and meeting the needs of their customers (Yip and Bocken 2018). Other objectives of the Westpac banking corporation include the following: enhance awareness of the disability amongst employees, increase employment of individuals with the disabilities, perform particular initiatives in their areas of operation and ensure product marketing and promotion activities are all-inclusive. The Westpac banking corporation indicates an orientation in the direction of more growth, with 3 major areas of focus: improving productivity, financing in the initiatives of growth and increasing their frontline ability (Majdalawieh and Marks 2018).
The main future strategy of the Westpac banking corporation is to build a sustainable future by performing the action in the areas where they have the greatest impact. The company tries to challenge themselves on ways of creating the most important social, environmental and economic impact. The strategy of the Westpac banking is centered on the services that the company provides and how it can best assist their customers, its communities and their customers as the company navigate the most important emerging and current issues. The company wants to nurture more inclusive and fairer future for all the people. In delivering the strategy of the company, the company is focused on their main markets of New Zealand and Australia where it offers a comprehensive kind of financial services and products that help the company in satisfaction of the need of their customers (Allain and Laurin 2018). The portfolio of the brands (financial services brands) enables the company to cover a wider range of customers and offers the company with the strategic flexibility to provide solutions that meet the requirements of their customers. The strategic priority of the customer is to use ABC model to improve the services of their customers. The company will also make use of the digital technologies to assist their customers in controlling their finances (Fang, Ma, and Luo, 2018). The table below represents competitive strategies of the organization.
Recommendations about Execution of ABC Model for Westpac Banking Corporation
The management of the Westpac banking adopts ABC model to help in improving the accuracy in costing thereby enabling the Westpac bank in getting closer to the true profitability and true cost of services and products, or to have a good understanding of the methods of improving return and cost on investment project. ABC help the company to come closer to true costs by transforming traditional and many indirect costs accounting into direct costs (Aysolmaz, Leopold, Reijers and Demirörs 2018).
The implementation of the ABC into Westpac banking enables the management to apply the approach of the ABC model to provide decisions that relate to deleting and adding items from or into product portfolio, pricing, choosing between in-house and outsourcing production, as well as evaluating process development initiatives (Dale and Plunkett 2017).
The Westpac banking not only uses ABC as the accounting tool but it also uses it as a tool of decision making for the management. This offers valuable business intelligence. The ABC produced information that improves tactical, strategic and operational decisions as well as enhancing the organization cost control. It acts as a strategic tool which enables the organization to accomplish competitive advantage. It also enables the Westpac banking to identify the factors that affect the changes in cost in both the long and short-term. The main need for the Activity Based Cost is to improve the decision of the management (Ding, Zhou and Akinci 2014). ABC is an important tool that helps in enhancing the bottom line and top line the same time. It can also help the organization in setting the competitive pricing. The model can also offer data on things that constitute the minimum cost for a specific job (Niskanen 2017). Therefore ABC allows the organization to set its baseline for the price. The Westpac banking can now bid with low price to win the contract as compared to other companies that do not employ the use of the model. The Active based cost enables the company to review its product for the purpose of the price adjustment. It will disclose the opportunities in order to reduce cost by improving a process and better product design. This will offer the customers added advantage (McBain 2018). Thus the customer’s retention rate will increase and thereby improve the competitive position of the organization.
The Westpac Company should not only use Active based costing as the only tool that provides the competitive edge. This is because it will not tackle all the problems of the organization. Active based costing is just one tool among many tools which enhance and complement other management tools such as total quality management. It is just one tool that assists the managers to make and formulate the strategic decision. The organization has to ensure that the management tools that it uses must supplement and complement each other in order for the company to reap maximum benefits from the management that they are using (Li, Liao, Timmermans, Huan and Zhou 2018).
Possible Management Accounting Tool for Westpac Banking Corporation
In implementing Activity-based costing to help in achieving the goals of the organization, the organization should develop a practical mindset. Active based costing act as a machine that does not think about the organization. Therefore the company should employ talented, knowledgeable people to use and interpret the information from the Active based costing to help in making the strategic decision (Oseifuah, 2018).
Westpac banking should apply the use of the Total quality management. This is a management tool that tries to integrate all the functions of the organization (for example finance marketing, customer service and production) with the intention of satisfying the needs of the customers. Total quality also gives the explanation of the attitude, organization, and attitude of the institution that attempts to offer customers with services and products that fulfill the needs of the customers. The Westpac banking should use the tool because it will enable the employees and management to be incorporated in the improvement of the quality of the company products. It combines quality and accounting tools with the aim of reducing losses and increasing business (?e?evi? and Anti? 2018).
Conclusion
The above discussion demonstrates that accurate costing is vital in effectively managing the operation of the organization. It is important for the organization to use different costing system. It is also true that ABC model is the best tool for the company and its use depend on its practicality, information acquired through data collection and cost of implementation (Rasouli, and Timmermans 2014). The report also explained the important role of the Activity-based costing in the organization. The management should understand the limitation and advantages of the costing system that they are using. It is also true that the Activity-based costing not only focused on the present but can also assist in facilitating future planning by identifying out waste and inefficiencies that reduce profits and influences the competitiveness of the company.
References
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